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tv   Squawk Alley  CNBC  November 4, 2014 11:00am-12:01pm EST

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alibaba headquarters in china. 11:00 a.m. here in wall street. "squawk alley" is live. welcome to "squawk alley." one of al baibaba's first backe. jon fortt, kayla here at post nine. and the big story is alibaba. shares in the green after the quarterly profit was inline.
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revenues did exceed consensus. as total users and merchandise volume. but there were some concerns and comparisons to amazon. we talked to joe tsai on a first on income this morning. he explained it this way. >> we are not like amazon was the fundamentals and business model. they margin is hampered by the fact they take on inventory and a large cost of goods sold item. so their gross margin starts with a very very low number, somewhere, you know, in the low teens. and in our case we operate on a marketplace model wrrhere the revenue we generate from commissions and online marketing services have inherently very high margins. in our core business we don't see any reason why the margin needs to decline over time. so in terms of the margin that you are seeing in the latest
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quarter is really reflected in the fact we are making investments for growth. we are going to be very disciplined in terms of these types of investments because you can only focus on a few areas. and we have strategically identified these long-term growth areas like digital entertainment, like local services and also doubles down on our investments and mobile operating system. these are all long-term strategic projects and we take a very disciplined approach to that. >> and it really was those comments that helped the stock which was looking weaker in the premarket. let's talk about the results for more on what the do with the stock. victor anthony also, good morning to you. >> good morning. >> those comment, those reassuring comments about margins. how much weight do you give them? >> well i think he was precisely correct. the top line growth was solid and came in handily above my estima estimates. the margins when he adjusted for
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acquisitions and investments came in above my numbers as well. i think the long-term growth opportunity is significant over timeout. wh time. when i talk about why to invest in this stock. look at the number of internet users in china today. that exceeds --. if they penetrate u.s. it is an additional 500 million users. not dissimilar to the u.s. but increasingly significantly over time. most projections i've seen over the next three years call for -- that's billions of dollars coming online. alibaba is good position. that is the reason to buy this stock. >> i'm interested in your perspective. why is this not ebay all over again? ebay hadded a much better
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looking model than amazon but needed to go back and do some things, make some investments to improve the user experience. and that arguably would effect margins over time. amazon has really paid attention to the user experience. why won't that effect alibaba's margins years from now. >> well i think it is a very difficulty different model than ebay and amazon. one of the things we liked about alibaba is their ability to make sure the customers, both merchants and customers are happy and satisfied. there is a good ry for merchants, for example. this is a key difference between the other companies in terms of making sure everybody is making money around the table and the customers and consumers are happy. i think it's three act play. we talked about the first act, the penetration of the china e-commerce market. joe talked about interesting outline, i think i heard him for
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the first time publicly say going after the --. e-commerce is the only way for many chinese consumers to buy anything today. the off line distribution system t off line retail system in china is old and it is not really that strong. unlike the u.s., which is why e-commerce is much better. further penetrated in china. i think they will continue to pen at a time the markets in china. the second part of that same penetration is the take rates for merchants. surveying merchants. i think they have a long ways to go to continue to spend money in alibaba to again generate revenue and increase profitability. that is the first act. the second act is the international expansion of alibaba. they really haven't started talking about that much yet. softening the beach heads t acquisitions and investments they have done. i think that is going to be an
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important second act for the company. and the third act, which i think joe alluded to is the expansion outside of the e-commerce. those also are very important growth areas. the company is still a growth story. and i think you are going to see a lot of growth from alibaba and revenue growth and mobile penetration is just the first iterations. >> certainly a lot to like. but victor, companies when they get mature, they have to invest to grow. it does seem like that is what alibaba is doing. and to what joe tsai attributes that. there do seem to be costs goingen up. one, share based compensation which a lot of these tech companies after going public report using that as an x number. but it is huge. it is up triple digit, 248% since the year ago quarter. and i'm wondering if this is something analysts are going to have to start baking into their
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models going forward? or is that a one time issue. >> because of the stock appreciation -- sorry victor. >> yeah that's mostly because of the ipo you are seeing a the significant bump in the stop composition over time. what's going on with alibaba is not dissimilar to what you see happy with google, amazon. these are large eco system platform players with strong network effects. in order to capture the growth coming on the internet, advertising over time, you have to invest. and so that is what you are seeing in terms of what's been mentioned in terms of the growth profile for the companies over time and why they choose to informs in the business model. so they capture the growth. and also to remain defensive. the competition is ripe in china. competition is ripe all over the globe. you can expect google amazon, all of these different company, facebook. there is going to be huge competition globally to capture the mind share of users over time. so those are the two dynamics at
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play. we adjust for that over time. and look at the that across the companies. >> you have no one them more than a decade. and when they have been our program they have said customer comes first. shareholder second and maybe even third. you still believe they have discipline when it comes to spending over time? >> i definitely do. >> all right. victor thank you so much for your time. and hany is going to tick around. up next. forbes shawn rad is out. tinder played a big part. however he'll stay on the job until the company finds quote, eric schmidtlike person. here is what bill bur gurley ha say yesterday on the program. >> if you look at different types of social media measurement in terms of
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engagement, viral coefficient, that type of thing, this company is phenomenal. the team discovered a use case and way of interacting with this double locked in thing they do that is supercompelling to users. >> people are questioning management, operational capabilities of the companies growing very quickly. you know which ones i'm talking about. >> yep. i find this interesting. i waonder to what extent. bill gurley was talk about about how much they wanted in. and shawn rad and tinder had issues with management. a co-founder who led marketing a woman who brought allegations of sexual harassment, said that she was forced out basically of that role and title of co-founder. it is really important for these
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young ceos of tinder and there are others out there to be careful about how they manage their companies as well as growth. nothing but plot exas far as tinder's growth is concerned but how it is managed. >> as an investor whose maybe in an early round keep a hand in these management issues that develop over time. >> often times young ceos and founders don't how to operationally manage a company as it is going from ten people to a hundred to a thousand people. that is a very difficult process. often times you need to augment with a strong second or third summon with operational experience that can help them grow. so i think it is an ongoing issue for many companies.
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but i think if you have a right adviser you can help them along. >> hany, always good to have you. ha any nada from ggb capital. appreciate it. >> the dow is sliding down 85 points at this hours. much is tracing the decline in the oil markets as well as it has been for last week. s&p and nasdaq negative as well. shares in michael korz kipping. fortunately for call street the read is disappointing. and sprint announcing it was cut gt about 2,000 jobs and weaker than --. that stock down nearly 18%. the web summit.
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europe's largest tech conference kicking off today. seema is there live. >> europe's economic down tturns a challenge here. a lot of start-ups have told us that it's been tough to raise capital in europe. and that is why they are spending more time heading to silicon valley to gauge interest from investors over there. tax inversion definitely a topic here at web summit, the ireland government of course recently ending the double irish tax loopho loophole. one of the reasons companies like apple and google have send up operations here in dublin. the big question if companies like apple and google pull away what is the economic impact on the country. we spoke to prime minister of ireland and here is what he had
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to say. >> a transition period to 2020. ao it's very clear our corporate tax rate remains at 12 and a half percent. but when you strip away the other ingredients we want companies who are incorporated here who imploy they are people now and we've given that great certainty for the future. >> ireland's prime minister doesn't think they will lose its appeal of being the silicon valley of europe. but investors still say the government has to find other ways to hold on to reputation and build human capital to stay appealing to tech companies. aside from tax inversion, another big topic of interest is robotic and artificial intelligence. in fact the halo founder on worldwide exchange told us hoe he recently left halo and starting a new adventure in robotics. and oculus was also talking such. so that will be something to
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watch going forward. >> seema, thank you very much. when we come back is if future of mobile gaming all about celebrities? we'll have more with the co-found ore it have zinga. and what are apple merchants afraid of? and the first wearable camera ever that can fly. we're going show you what it can do later on in the hour. close to session lows. and "squawk alley" back in a minute. cld how do you beat the number one seed? you just have to win 70% of your points at net. and keep unforced errors under 10%. on the ibm cloud, the us open analyzes 41 million data points from 8 years of competition to uncover key insights. data can help show you how to win, no matter what business you're in.
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welcome back to "squawk alley." energy stocks taking a hit as oil prices hit four year lows. among the lagers in the large cap s&p 500 index. halliburton. >> trags ocensocean. nabors industries. >> thanks for that update. celebrity backed mobile games raking in the revenue. kim kardashian could be to blame. her game pulling in $51 million in sales. are these apps the future of gaming or just one-hit wonders? joining us in dublin, ireland is zynga co-founder and angel
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investor justin wall gren. you founded zynga seven years ago. take us to 2014 and what you see is the perhaps most interesting and surprising trend you are seeing in the gaming space. >> i think we went from a transition of licenses and brands and celebrities not being a major part of creating the content. and now it is clear that is a huge part for mobile going ford. >> now you do need the brand equity of a celebrity to create a hit? >> maybe. i think at this point you need a great game and you need a great celebrity and partnership to create the game with. we're seeing a lot of celebrities go into the space. but it remains to be seen
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whether or not all will workout as the partnership with kim kardashian. >> when social gaming first took off, part f allure of the business model was that social network is going to make it viral and it is going to take down the marketing cost and need to license big brands or the partner with big celebrities like a kim kardashian. so what is the promise of this arena now? is this business model just not any better than traditional gaming is it perhaps bigger because mobile allows casual gaming to be in the hands of more people? >> i think what's changed is the scale is so much bigger and modernization is so much strong ore mobile. that we can afford to create these kind of partnerships because there is enough revenue forring th for this to work. with facebook, it wasn't as interesting because we didn't need do this partnership to get
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to scale. >> what are justin, the most viable channels or platforms for a game right now? >> we're seeing some messengers in asia commanding huge control. in japan, in the u.s. they have platforms where games are now distributing through the messenger app. similar to like facebook in the past. and only mobile that is totally changing how distribution is happening. >> does that make messaging the new e-mail? the new social? and is it different a enough that we're not going to see the brakes hit like we did on facebook and see this viral effect drop off a cliff? >> i mean fundamentally mobile devices are connected. so i don't think that will change. whether it is messages or
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facebook on mobile, or something else, people spend most of their time on their mobile device connected to other people. and so games that exploit that are going to have a great chance at building something huge. >> justin, one thing is for sure. it is a rapidly changing space. we appreciate your time this morning to give us your insights. >> thanks for having me. >> justin waldron a co-found over zynga. when we come back a closer look at what's being dubbed the selfie drone. the first wearable camera that can fly. dow is coming back from lows. "squawk alley" back in a moment. they're still after me. get to the terminal across town. are all the green lights you? no. it's called grid iq. the 4:51 is leaving at 4:51. ♪ they cut the power. it'll fix itself.
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go. right on time. right now, over 20,000 trains are running reliably. we call that predictable. thrillingly predictable. what a day in europe. not no mention their decreases to their forecasted inflation across the euro zone. >> i think contrast again what's happening with n this country where the s&p is down, with the
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heavier losses you have in spain, they are three times as big as in the u.s. there are always questions over the sustainability of the recovery in europe. and when youp get the european commission. not usually market move bug cutting growth forecast from 1.7 to 1% because of core europe then that raises continuous concerns where you are going with growth and the possibility of a triple dip recession. nobody is forecastings that for next year. as the ecb of course comes center stage in two days time. a lot of these banks in the periphery of europe have fallen throughout the session. in fact were higher at home goes without saying the oil and gas operations and the driller. a deep sea rigs and services and all the rest, some have been fugo in the netherlands lost 80%
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of value. a lot of those will presumably become uneconomic. if oil stays at these levels it will be very tricky moving forward. and a lot of gas and oil suppliers themselves have also fallen into to negative territory. and these are heavyweights don't forget within the european bench marks which is why they have fallen. we've got some good news as we work through earnings season securi securities. that's done well at 9%. but again the ceos cutting away. look at the hugo boss today down 5% as they lower some estimates moving forward. if you look at the way europe has beaten so far this earning season according to reuters, i p about 12% with estimates but with revenue falling.
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so you come to the conclusion they are beating that is they are clearly cost cut. another day of concern. i'd like to bring you happy rainbows and unicorns. >> maybe thursday. not much so far this week though. simon thanks so much. crowd funding campaigns are creating radical new ways to live in the virtual world. you get to choose which vr environment you would want to be in this week's tech crowd. >> skap sclp -- bleen. the campaign's goal, $225,000. so far it's raised close to 225,000 in fundings.
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the nimble sense is taking virtual reality to the next level. using skeletal tracking software to allow gamers to freely use hands to play in a virtual world. optimizing vr devices such as the oculus rift. the campaign goal, 62,500 who should be this week's leader? vote now. >> when we come back. what are the antiapple pay merchants afraid of? that is the headline from walt mossberg's latest piece. dow is down about 43 but what if you could see more of what you wanted to know? with fidelity's new active trader pro investing platform, the information that's important to you is all in one place, so finding more insight is easier.
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s. they put out a statement
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that i was i thought somewhat misleading that said apple pay can't be used here. i'm paraphrasing and of course we knew it could be used there until they decided to turn off the technology in their terminals that allowed it to be used. so look, they are part oaf a consortium. the consortium is working on its own rival payment system and it has a rule that says no other payment system can be used while it is workings on its own. >> reportedly the purpose of this new payment system is to escape the merchant fees that are very expensive for retailers. would help cvs and other retailers fatten their bottom line. but how would you feel if they decided to pass some of thaz savings to you? the customer. >> i would happy if they would. but a there is no guarantee anyone will pass it onto the customer. they may just pass it on to the shareholde shareholders.
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and secondarily it is not really, i don't have any problem with them and their fight with the banks. i'm not in that fight. i'm in the fight for consumers. the point of my talk this morning was consumer choice. their app, their payment method may be better. but let me decide. don't turn it off. let me decide. >> jon fortt here, let me play devil's advocate. nobody plays hardball in payments particularly in digital like apple. apple is forcing everybody who does business through the app store to give apple a cut. how is this any different? >> well it is quite different. because a, there are apps on the app store where you can subscribe like netflix frior instance. have a netflix subscription on
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my pc and all i do is log in on an ios device. apple on ios in their app store has every one of their rival's products on there. google must have 20 or more apps on there and that is apple's biggest competitor. amazon, spotify. which competes with the itunes. it is just a similar question of the consumer choice. if i want to use -- but when i get to the cash register they are telling me that something that works perfectly well in their store i can't use because they are working on their own thing. >> and you make the point that you have taken some your business to walgreens as a result. >> i have.
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>> -- a skirmish. i wander what kind of resolution you see coming if any. >> i have no identity. the merchants app, which is called current c and won't be out until next year will supposedly allow you to use loyalty cards and things that apple pay doesn't support you. everybody say may look that is the better way to go. on the other hand the mernlts app requires you at the moment to scan a qr code it. requires you to put some of your information in the cloud which apple doesn't do. so some people may not want to use it. i can't predict how it is going to come out. i'm just saying let's let customers choose. this is capitalism. we'll all choose, we'll all decide what works. if apple pay falls on its face, it falls on its face. >> and ostensibly next year we'll get a sense of what the current c platform looks like. 's been in development 4 years. we haven't seen a prototype.
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at this point do you think the retailers should throw in the towel? or do you think having a better choice -- choice is a better for the marketplace. >> i think choice is always better. and i'm not saying they should throw in the towel throw i agree it is a long period of time for this thing to appear. like i said, look i'm probably going to review their thing. i may like it better. i may use it personally. i don't know. just give me a choice. don't say, hey, we're worried -- i interpret this to mean we are afraid you will like this cool apple pay thing. which by the way is the best one i've seen. we're afraid you will like it so much that we're just not going to let you try it until we can finish ours. and that seems wrong to me. >> kicking up dust as usual. walt, always good to see you. thanks for the time. and just to note. nbc universal is a minority
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invest ner re/code. we do have the a content sharing partnership. trouble out of russia this morning. a memorial founder steve jobs of apple has been taking down as ceo tim cook came out as gave last week. the 6 foot tall monument was put up outside of a college back in january 2013. the company behind the monument cited had need to quote abide by a law citing gay propaganda, unquote. there are no words to describe this. >> there are some reports that i've seen that there was a technical problem with the memorial. so it was scheduled to be taken down before tim cook made that public announcement. now for me the question is are they going to put it back up after they fix the technical problem. if they don't it back up it is the same as taking it down because of the announcement i guess. >> you will forgive us for being
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skeptical about that excuse. let's get over the steve leishman this morning. >> the data taking a back to third quarter gdp. down by 3 percentage point on the weaker trade data or larger trade deficit than expected the q 3 average 3.1% now. goldman sachs, morgan stanley, mark zahndy at mood dis, all right at three percent. the original report was 3.5%. so a hoalf point. fourth quarter still not too bad. that is the average with a range of 1.8 to 4.2. whose 4.2. joe levorgna who's been optim t optimistic throughout. and the weaker factory orders we
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got today. a little better than expected but still down.6% for the month of september. the trade deficit, wider than expected. we got a $43 billion deficit. exports perhaps showing weakness in global economies. and imports were flat but helped by guess what? iphone imports. that is something that helped imports. one of the few company products that shows up in the data. when apple does something it shows up in the national data. >> for those who doubt the size of that market, look no further. steve leaseman thank yoisman th.
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>> we're going stick can the japan theme. they were closed for culture day. the stock market is a bit out of sync with ours. they were up 2 and three quarter percent today. why and can it continue? after the break. tigers, both of you. tigers? don't be modest. i see how you've been investing. setting long term goals. diversifying. dip! you got our attention. we did? of course. you're type e* well, i have been researching retirement strategies. well that's what type e*s do. welcome home. taking control of your retirement? e*trade gives you the tools and resources to get it right. are you type e*? can i get my experian credit report...eport card" thing. like, the one the bank sees. sheesh, i feel like i'm being interrogated over here. she's onto us. dump her. (phone ringing) ...hello? oh, man. that never gets old.
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for all of your wealth management and retirement goals, discover how pnc wealth management can help you achieve. visit to find out more. coming up top of the hour. herbal life tumbling on earnings and we have cfo. with the stock down 40% this year we're going to ask what is
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going on inside the company. drop box announced a but the deal with microsoft. we're talking to tth ceo. one of the 40 under 40. and he's going to join us live. and the election results what they mean for the money? and straight ahead at the stop of the how to. >> oil continues to get slammed this morning. below 77. back in june it was 107. as we hit the three year lows. >> hi, good morning to you carl, women i think one of the traders just summed it up best. we could see a $5 slide before the day is over. right now prices are down about 2 and a half bucks on wti. what happened yesterday is the price cut from saudi arabia, triggering a lot of the technical selling here. of course a lot of traders eyesing the opec meeting on december 27. thinking they may unleash a
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supply cut but doesn't look like that is the case. looks like they are start tag price war here. really going to try to force the hand of the u.s. producers to cut that supply. on a technical basis we were watching levels around 7.50 but broke through those. also remember you have a very strong dollar. that is going to help us get down to the levels. potentially the index is very significant. traders also talking about the lifting of the export ban here in the u.s. that needs to be a conversation on the table again because that could help release the supply tensions and glut we are seeing here. right now a lot of action in the pits. let me recap prices for you. 76.29, down 2 and a half dollars. >> some of the quotes made gold man's call for $75 downright bullish. but a wild move today certainly. let's get to the cme group
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and rick santelli. >> the japanese economy is roughly -- roughly, about 5 trillion dollars. u.s. economy is closing in on 17 trillion. so obviously a smaller economy. but when you look at the quantitative easing and let's take a trip down memory lane, they embarked on the u.s. style qe about, what, 19, 20 months ago. so closing in on two years. and when originally announced they were looking at the clip of 70 trillion yen. as of last week they upped it to 80 trillion yen which is. and are how much is in the hands of the debt to gdp is over 220%. of course i told you earlier japan was closed yesterday. culture day. with see the stock market was up until 3%.
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but they are a little out of phase with us playing catchup after last week's big announcements. but what we are left with now is their nikkei hovering at best levels since fourth quarter of '70. not a coincidence that the foreign exchange the yen is the allows level since the same time period. thanks to the relationship of foreign exchange where your currency has pob benchmarked in value against something else and that predominantly is the euro to a leisusser extent the yen. the issue is if there is any systemic breakdown of when qe doesn't work in the long run and probably going to take longer to really figure that than many suspect, what that will reap isn't going to be good for anybody's economy. we're in a global closed system.
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but let's consider, when you look at the government pension fund, based on the announcement bank of japan is buying more securities but domestic debt allocation from that trust is moving down almost by half from 60 to 35%. so as you look at those charts the five year on a 20 year chart has never been a lower yield. and you can see the ten year currently at 44 basis points never lower. and the demographics agar somebody is going to have to release some of these securities at some point. and consider japanese government bonds trade by appointment. so it is not a very liquid market. when you put all that together. yes equities need to move up but we really need to pay attention to the foreign exchange and the metrics. productivity is really the missing ingredient in the japanese economy. >> thanks rick. satya nadella is leaving his
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mark on in fact. what the detiles of the pact mean for both companies coming un
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built for business. . another sign of a new more open microsoft. drop box and microsoft announcing integration of their products. microsoft office will be integrate good into the drop box office. and access to your files on drop box will be built into the app. it is a latest in a string of moves from nadella that opened
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up the microsoft eco system on mobile. including offers on the ipad and microsoft's wearable which works with google and apple's operating systems. talk about putting your money where your mouth is, jon. >> and strategically potentially huge for microsoft. we had satya nadella here on "squawk alley" just a couple weeks ago and he was talking around the edges of the strategy, where he said we want people using products like office 365, like one drive. which is their competitor to drop box. a try on the consumer level. but when you want to use it for professional purpose, then you buy. so office becomes the default app that opens up these types of documents. it could lead people to begin then paying. but the part that is not clear here is what that mechanism is. how they are going to make it simple for people to want to upgrade. we'll see. >> of course there is no dollar figure on the partnership
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either. so it's unclear who gets the revenues. here on show we've been talking about whether microsoft could buy a cloud company like drop box. here it seems if you can't beat them or buy them, maybe join them. at least for now dropbox and these cloud companies they wouldn't want to pigeon hole themselves by selling to only one company. >> and the stock which we talk about a lot. off a touch today to be fair but 47 bucks. you could argue two years ago no one should we would be hitting those levels. >> steve ballmer probably would have argued it. and i think also strategically this is dangerous for companies like dropbox and box. their strategy going forward is not just about storage. we're building apps on top of the storage because storage has
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been commoditized. >> unlimited photo storage if you are primed. >> but microsoft is taking away that incentive to use a different productivity app on top. and to convert to users to paid, where do dropbox and box make their money? >> from subscriptions. people who are buying the storage for all their documents for their sharing. but this deal is really fascinating. i don't know. i think there is more there than meets the eye. and i think we're going to hear more about it. >> you got that right. in the meantime oils continuing slide is dipping the markets. we'll get more analysis of that in just a minute. there was no question she was the one. she reminds you every day. but your erectile dysfunction-that could be a question of blood flow. cialis for daily use helps you be ready anytime the moment is right. you can be more confident in your ability to be ready. and the same cialis is also the only daily ed tablet
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earlier this year intel launched its make it wearable challenge. christoff is co-found of nixey, a flyable and wearable camera. how did you come up with the idea? and how long did it take to develop? >> i've actually always been
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tinkering with the adequate continue e quad continp ters. zblds continuers. >> seems durable might be an issue. how long is this going to last? >> it is not that you take video forev forever with it. but in the end you just want to capture the moment. and this you can do like 50 times a day. >> christoff, the primary audience at first was rock climbers, people who have trouble often capturing their activities.
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how big do you think this audience and how do you think this is different from a gopro. >> i am a rock climber and i tried using gopro but it just doesn't give you the perspective you need. i think this is really the market that is craving for a product like this. but in the end we want every adventurer to have it. and we think in the end it could be the next generation of the point and shoot. >> half a million dollar grand prize and how do you use that money? any restrictions as to how much money you can raise down the line? no restriction and getting this is really amazing. the product we are building still needs research development. and traditional routes would be quite hard but this money now makes it possible we eliminate more risks and can go as soon as we have eliminated had risks go the traditional route of funding. >> and how do you get it back?
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it shoots the great video, you are on the side of the mountain. then what. >> there are two different modes. one is boomerang mode so it exactly comes back to the place where it got thrown from. and the other mod is that it follows you around and comes back to you wherever you are. >> finally christophe this as company trying to get back into the innovation cycle. as a developer what is your perspective on intel as that company. >> i think they are really succeeded in driving innovation here. they drive the innovation here. >> congratulations on winning the first ever intel wearables contest. and come back and see us. >> thank you. >> viewers writing in saying how about military applications,
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right? you can imagine the army or marines using this in some form or fashion. perhaps a government contract down the road. in the meantime, dow is steady down 50 points and we'll keep our eye on crude. let's get back to headquarters, wapner and the fast money halftime. thanks very much. welcome to the halftime show. let's met the starting lineup. stephanie link. pete and jonare co-founders of option monster. jim laventhal. stocks also reacting to earnings and a number of companies cutting outlooks today. crude o


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